[DigitalToday reporter Ji-young Lee] South Korean stocks saw a steep correction on concerns over regulation of the artificial intelligence (AI) industry that emerged after the U.S. midterm elections and the fallout from a global slump in tech stocks. As the U.S. Democratic Party took control of Congress, the possibility of tighter regulation of AI data centres came into focus. Selling spread, led by semiconductor and AI-related shares.

The KOSPI broke below 5,000 intraday last week, triggering a circuit breaker. It ended at 5,059.69, down 6.02 percent from the previous session. Heavy net selling by foreigners led the fall, while the market's high dependence on semiconductors and volatility were also cited as burdens.

The brokerage industry says it is too early to view the recent plunge as reflecting a structural collapse of the AI industry. It says a rebound is still possible, but also raises a cautious view that it needs to further check foreign selling, U.S. AI regulation and the rate trend.

The government said it will exempt securities firms for 3 months, starting on the 9th, from the obligation to maintain a 140 percent collateral ratio for credit loans in response to rising market volatility. With U.S. inflation data and AI company earnings cited as key variables that will determine the market's short-term direction, securities firms' forecasts for next year's KOSPI range from 5,000 to 10,000.

• [Market outlook] Rebound or further decline...KOSPI at a crossroads at 5,000 • Where South Korean stocks are headed...Brokerages split on next year's KOSPI outlook • KOSPI barely holds 5,000...Brokerages: "AI collapse excessively priced in...more needed to confirm a bottom" • 'Black Friday' fears of AI send semiconductor shares sliding...KOSPI scrapes past 5,000 • Impact on South Korean stocks?...Eyes on U.S. midterm election results • U.S. stocks 'panic sell' on Democratic victory...S&P 500 tumbles 4.4 percent; $3 trillion wiped out • "KOSPI volatility bigger than in the U.S...diversification is key to long-term investing" • Vice Finance Minister Lee Hyeong-il (이형일): "Will prevent excessive volatility...take necessary measures preemptively" • Three-month exemption from 140 percent credit-loan collateral ratio requirement after stock plunge

Along with measures to address stock market volatility, moves also continued on sanctions and financial system reforms by financial authorities.

The Financial Services Commission made a final decision to impose total penalties of 371.2 billion won and fines of 3.39 billion won on 7 banks and 6 securities firms over mis-selling of equity-linked securities (ELS) tied to Hong Kong's H Index. The level of sanctions was confirmed about 2 years and 8 months later after repeated deliberations and reductions.

The extension of the operating period for a special account for savings bank restructuring has emerged as a key issue for the financial sector. A bill to extend it by 1 year is pending in the National Assembly ahead of its expiry at the end of this year. If the extension fails, there are concerns that the deficit in savings banks' proprietary accounts could widen to as much as 350 billion won.

The commission is also pushing a plan to supply 4.5 trillion won in low-interest loans over the next 3 years, based on a 300 billion won special contribution from banks, to ease funding difficulties for small and medium-sized firms in regional areas. It plans to proceed in parallel with improvements to corporate finance systems, including shortening maturities for accounts receivable and abolishing recourse rights.

Fair competition issues among platform operators were also raised. Toss Place filed a complaint with the Fair Trade Commission, taking issue with being excluded from Naver's point-of-sale (POS) integration. Toss Place asked for a 판단 on whether there was unfair discrimination, while Naver's position is that it applies the same standards and there is no discrimination.

• Financial Services Commission finalises sanctions over Hong Kong ELS...about 370 billion won in penalties for banks and securities firms • Savings bank special account extension 'unclear'...concerns over 350 billion won deficit • Financial Services Commission pushes 4.5 trillion won in low-interest loans for regional small and medium-sized firms • Toss Place files complaint against Naver with Fair Trade Commission...claims 'unfair discrimination' over POS integration exclusion

Security system reforms are also accelerating in response to hacking incidents spreading across the financial sector.

The Financial Services Commission is launching a task force to review a full lifting of existing network separation regulations. It plans to prepare a plan to shift to an AI-based security system by the first quarter of next year.

It also said it will conduct a full inspection by year-end of external contact points and internal control systems at about 580 financial companies. It also plans to strengthen a shared hacking-information sharing system across the financial sector.

Financial Supervisory Service Governor Chan-jin Lee (이찬진) instructed financial company management to strengthen accountability for security management over a series of hacking incidents.

At Mirae Asset Group, security concerns grew after cyberattacks hit its life insurance and asset management units and then its securities affiliate. At Mirae Asset Securities, the account numbers of about 3,800 customers and personal information of 35,255 employees, including retirees and outsourced staff, were confirmed to have been leaked.

Security concerns also grew in the digital asset industry as a major hacking incident at Binance and repeated data leaks at domestic exchanges occurred. Gopax fully suspended deposits, withdrawals and trading over hacking threats. Financial authorities are pushing to strengthen security management, including exchanges' asset custody and monitoring for abnormal trading.

As financial authorities push both expanded use of AI and easing of security regulations, a key task has emerged: not only introducing new security technologies but also making practical improvements to vulnerabilities in existing systems.

• Lift network separation restrictions and strengthen AI security...will financial authorities' 'hacking bet' work? • Financial Services Commission confirms 470,000 cases of information leaks in finance...to revamp AI-based security system • Financial Supervisory Service governor instructs stronger management accountability over hacking incidents in finance • After Mirae Asset Life and management units, securities also hacked...chain of affiliate attacks spreads • Gopax fully suspends deposits, withdrawals and trading over hacking threats • Digital asset market on 'hacking emergency' sparked by Binance...will tougher regulation follow

The push to strengthen security in the financial sector is also extending to improvements in authentication and payment systems at individual financial firms.

Shinhan Investment Corp is strengthening its system to prevent financial fraud such as voice phishing by using customers' mobile phone activation history for abnormal financial transaction detection. It is adding checks on recent mobile phone activations for large cash withdrawals. It also plans to introduce an AI-based voice phishing call-pattern analysis service in 2027.

Naver Pay obtained international standard ISO 24745 certification for the biometric information protection system of its facial recognition authentication and payment service, FaceSign, for the first time in South Korea. It is raising the level of security by applying technology that blocks fraudulent authentication using photos or videos and quantum-resistant cryptography.

Coocon also launched a "card ownership verification service" that checks whether a card name matches actual ownership to reduce fraudulent payment and settlement risks. Across the financial sector, there is a trend toward strengthening customer authentication and abnormal transaction detection functions.

• Shinhan Investment Corp blocks voice phishing with mobile activation history • Naver Pay is first in South Korea to obtain international certification for biometric information protection...strengthens FaceSign security • Coocon rolls out service to verify card name and ownership information...strengthens payment security

At the same time, moves in the financial sector to apply artificial intelligence (AI) across financial services and operations are also accelerating.

KakaoBank said at a forum that AI agents and stablecoins are key technologies that will change the landscape of the financial industry. It warned that if South Korean banks fail to respond to change, they could face a survival crisis. It stressed that to revitalise won stablecoins, discussions need to go beyond the issuer to also address the actual payment and distribution environment, along with legal and tax system revisions.

Woori Bank plans to introduce AI into overseas remittance screening. It will analyse supporting documents such as contracts and invoices, recommend payment reason codes by remittance purpose, and automate transaction information entry. It plans to apply it first to remittances for trade and service payments, run it in parallel with the existing method for about 2 months, and then apply it fully.

Webcash will launch "Gyeongrinara MCP" in December, linking generative AI with corporate management data. The service will support users in checking and analysing account transaction histories and tax invoices in ChatGPT or Claude. It also plans to introduce an AI agent specialised in accounting tasks next year.

• KakaoBank: "Banks face survival crisis if they cannot respond to AI and stablecoins" • Woori Bank introduces AI to overseas remittance screening...analyses supporting documents and automates entry • Webcash to launch generative AI-linked 'Gyeongrinara MCP' in December

Not only South Korea's financial sector but also overseas banks and fintech firms are speeding up operational innovation and service expansion using AI.

U.S.-based Huntington Bank is operating hackathons and an internal experimentation space where employees directly use AI to develop work solutions. It also introduced an AI platform for small business customers that provides integrated support for finance, HR, marketing and inventory management.

UK fintech firm Revolut converted some external commercial AI models to its own operating model. It cut coding-related costs by about 90 percent and improved efficiency in development work. Research firm Forrester forecast that 1 in 3 banks will declare an AI transition next year and related technology mergers and acquisitions will increase by 50 percent. It expected only 5 percent of banks will succeed in making an actual transition.

Risks from wider AI use are also coming into focus. A U.S. survey found that 42 percent of customers who use AI while receiving professional financial advice follow AI financial advice without separate verification. Major U.S. banks including JPMorgan Chase and Bank of America are restricting external AI access to accounts and strengthening their own control systems in response to unauthorised trading by AI agents and unclear accountability.

Morgan Stanley is also expanding the use of AI agents in wealth management as financial institutions step up AI adoption in earnest. Building security and accountability management systems, as well as improving operational efficiency, is being cited as a key task.

• Employees need to try AI themselves...Huntington Bank drives digital innovation with hackathons • Banks that only provided loans are over...U.S. banks move into small business AI services • Revolut's optimisation secrets behind 90 percent reduction in AI coding costs • 1 in 3 banks to declare AI transition in 2027...AI finance M&A to rise 50 percent • AI over experts?...42 percent of financial advice customers follow chatbot advice without verification • U.S. banks on alert as AI spreads...strengthen internal controls over fraud and accountability gaps • Morgan Stanley expands AI agents in wealth management...implements automation through natural language

South Korea's internet-only banks are continuing loan growth led by lending to sole proprietors, expanding into corporate finance.

More than half of total loans increased by KakaoBank and K Bank through the third quarter this year came from business loans centred on sole proprietors. At KakaoBank, 981.0 billion won, or 58 percent, of a total net loan increase of 1.69 trillion won came from sole proprietor loans. At K Bank, corporate loans accounted for 1.33 trillion won, or 60.3 percent, of a loan increase of 2.20 trillion won. The two banks plan to enter the corporate lending market next year to continue expanding corporate finance.

KakaoBank posted a record-high performance, with cumulative net profit through the third quarter rising 25.2 percent from a year earlier to 469.8 billion won. Non-interest income was 888.3 billion won, accounting for 35 percent of total operating income. KakaoBank is also reviewing, in the mid to long term, a plan to broaden its M&A targets to include the credit card and securities businesses, following its push to acquire Mastern Capital.

• KakaoBank and K Bank see corporate loans surge...target corporate borrowers beyond sole proprietors • KakaoBank posts record-high cumulative net profit of 469.8 billion won through third quarter...up 25.2 percent on year • KakaoBank reviews M&A in card and securities businesses beyond capital

Banks are reopening mortgage products and sales channels that had been suspended to manage household lending, partly improving lending conditions toward year-end. Hana Bank resumed new handling of non-face-to-face mortgages and refinance products for mortgages and residential officetels from the 2nd after about 3 months. It also again allowed 가입 for mortgage credit insurance and mortgage credit guarantee for mixed-rate mortgages. SC First Bank and BNK Kyongnam Bank also partially lifted mortgage-related restrictions.

This reflects the effect of financial authorities raising targets for total household loan management and managing group loans separately, securing room for banks to supply additional loans. In addition, as bank bond yields fell, mixed mortgage rates at the top 5 banks fell by 0.33 to 0.61 percentage points over the past month. As a result, concerns over a year-end "loan shutdown" have eased somewhat, but borrowers' actual interest burdens are expected to vary depending on policy rate decisions and market rate trends.

• Banks resume mortgages one after another...year-end 'loan shutdown' fears ease

Financial support is also expanding beyond household loans to support corporate growth and help small merchants and vulnerable borrowers.

IBK Industrial Bank of Korea, together with Korea Development Bank and the Export-Import Bank of Korea, selected managers for a 700 billion won global scale-up fund. It plans to support growth funding for small and medium-sized firms, mid-sized firms and venture companies and their overseas expansion. KB Kookmin Bank will contribute 11.8 billion won to the Korea Credit Guarantee Fund and the Korea Technology Finance Corp to supply about 200 billion won in guaranteed loans to young startup companies. It will fully support guarantee fees for 3 years. Separately, it plans to invest a total of 10.0 billion won to support about 10,000 diligent payers who use moneylenders, covering 50 percent of interest paid for up to 1 year, capped at 1.0 million won per person.

Woori Bank launched a supply chain finance loan for small and medium-sized firms struggling to secure production funds before delivery, linking actual order information with guarantees from the Korea Credit Guarantee Fund. It will support up to 3.0 billion won per company and supply a total of 200 billion won in production funds. Non-financial benefits for small merchants are also expanding. K Bank started a campaign to support self-employed people with up to 3.0 million won for vacation expenses and store renovation costs.

• IBK Industrial Bank of Korea selects managers for 700 billion won scale-up fund with KDB and Eximbank • KB Kookmin Bank to provide 200 billion won in financial support for young startup firms...signs deal with guarantee institutions • KB Kookmin Bank to support interest for 10,000 diligent payers using moneylenders...to invest 10.0 billion won • Woori Bank launches supply chain finance loan...supports production funds before delivery • K Bank supports paid leave for small merchants...offers up to 3.0 million won

Banks' service expansion is also extending to wealth management and daily life-focused finance. Shinhan Bank signed a business agreement with Samsung Asset Management. They will jointly provide retirement pension customers with investment information such as market outlooks and asset allocation, and strengthen online and offline seminars and branch staff training. Hana Bank introduced a service in its mobile app Hana 1Q that lets users buy or gift physical gold bars. Customers can apply to buy on mobile and pick up the gold bar at a designated branch, with 5 types available from 10 grams to 1 kilogram.

Woori Bank completed, for the first time in the banking sector, a transaction in which it opened a won account for an overseas investment institution at its Singapore branch and remitted funds to a domestic securities firm through the Bank of Korea's won international settlement network. This is a case in which liberalisation of offshore won transactions under the government's won internationalisation policy led to an actual investment transaction. K Bank partnered with startup Pulda to launch "Happy Housing roundup," a service that lets users check public rental housing recruitment information, estimated housing costs and related loan products in one place.

• Shinhan Bank strengthens retirement pension asset management services with Samsung Asset Management • Hana Bank begins service to buy and gift gold bars in mobile app • Woori Bank completes first banking-sector domestic investment transaction via overseas won account • K Bank partners with startup Pulda...provides public rental housing information

Payment companies are also continuing diversification by expanding payment transactions and launching new services along with earnings releases.

KG Financial posted third-quarter revenue of 71.1 billion won and operating profit of 10.4 billion won. Payment gateway (PG) transaction volume was tallied at 2.3 trillion won. Volume handled in its new early settlement service also surpassed 10.0 billion won.

Kakao Pay posted third-quarter revenue of 302.1 billion won and operating profit of 32.5 billion won, helped by growth in payments and financial services. Operating profit rose 105 percent from a year earlier. Quarterly transaction volume reached 53.7 trillion won.

In the offline payment market, Toss Place processed more than 7,000 payments using its facial recognition payment service, FacePay, at a Seongsu-dong bread festival, accounting for about 56 percent of total payments.

Naver Pay is pushing to introduce its integrated payment terminal, Npay Connect, in the Seogwipo Central Shopping District on Jeju Island and said it will support the digital transition of local small merchants. NHN KCP also launched "Ttoktti Ledger," which integrates management of small merchants' card and delivery-app sales and spending through accounts and business cards. The service scope of payment companies is expanding into merchant business management.

• KG Financial posts third-quarter operating profit of 10.4 billion won...PG transaction volume reaches 2.3 trillion won • Kakao Pay posts third-quarter operating profit of 32.5 billion won...up 105 percent on growth in payments and finance • Toss Place tops 7,000 FacePay payments at Seongsu bread festival • Naver Pay to support digital transition in Jeju Seogwipo Central Shopping District • NHN KCP introduces 'Ttoktti Ledger' integrating small merchants' sales and cost management The fintech industry's business expansion is also continuing in stablecoins and digital assets.

Danal completed trademark registration for its AI-based purchase and payment service, "Payment Assistant," and completed the publication procedure for 15 stablecoin-related trademark applications as it prepares related business. Coocon signed an agreement with blockchain infrastructure firm DSRV and began developing financial data APIs using stablecoin transaction information and AI agent payment technology.

On the policy side, the government plans to push, through consultations with the National Assembly, a plan to extend by 2 more years a delay of digital asset income taxation to 2029, from its scheduled implementation in January next year. Securing overseas transaction tax information and introducing loss carryforward deductions were presented as key tasks for overhauling the taxation system.

On the business combination of Naver Financial and Dunamu, the Fair Trade Commission said the review results have not yet been finalised. Dunamu proposed at the National Assembly Legislative Expo improvements to protect a deceased person's digital assets and allow heirs to comprehensively check holdings.

• Danal completes trademark registration for AI payment service 'Payment Assistant'...prepares stablecoin business • Coocon cooperates with DSRV on on-chain financial data and AI payment business • Government moves toward delaying digital asset taxation by 2 years to 2029 • Fair Trade Commission: "Naver Financial-Dunamu business combination not finalised" • Dunamu proposes improving blind spots in digital asset inheritance..."integrated protection system needed"

In the securities industry, third-quarter earnings releases and intensifying competition in the retirement pension market emerged as key issues. Korea Investment & Securities posted third-quarter operating profit of 348.7 billion won, down 58.3 percent from a year earlier.

In the retirement pension market, securities firms are competing to attract customers by highlighting top returns by product, including defined benefit (DB), defined contribution (DC) and individual retirement pension (IRP). As of the end of the third quarter, retirement pension reserves at securities firms totalled 160.29 trillion won.

With ETF investments within retirement pensions reaching 99.8 trillion won, the Financial Supervisory Service launched a long-term and diversified investment campaign to prevent chasing short-term returns and concentration in specific assets.

• Korea Investment & Securities third-quarter operating profit 348.7 billion won...down 58.3 percent on year • Everyone claims No. 1...securities firms wage fierce 'retirement pension battle' under differing standards • Retirement pension ETF investment nears 100 trillion won...FSS launches long-term, diversified investment campaign